Authorities Set Banks' Fixed-Rate Mortgage Loan Target Ratio at '30%'

The authorities have set a target ratio of 30% for banks' own fixed-rate mortgage loans. This is to encourage banks to increase the proportion of fixed-rate mortgage loans, which remains low excluding policy mortgages.

On the 3rd, the Financial Supervisory Service (FSS) announced the implementation of a new administrative guidance titled "Improvement of the Structure of Mortgage Loans in the Financial Sector." Since 2014, the FSS has been conducting administrative guidance to expand the proportion of fixed-rate and non-grace period installment repayment loans to improve the structure of mortgage loans.

Seoul Yeouido Financial Supervisory Service building. Photo by Younghan Heo younghan@

As a result of previous administrative guidance, the proportion of fixed-rate loans in bank mortgage loans (including jeonse, group, and policy mortgages) increased from 23.6% in 2014 to 51.8% last year, and the proportion of installment repayments rose from 26.5% in 2014 to 59.4% last year. However, the authorities point out that excluding policy mortgages, the proportion of banks' own fixed-rate loans remains low. Among banks' own products, mixed-rate loans (fixed for 5 years then variable) account for the majority rather than pure fixed-rate loans.

Accordingly, the authorities newly set a target fixed-rate ratio of 30% for pure fixed-rate or periodic (interest rate change cycle of 5 years or more) mortgage loans with a contractual maturity of 5 years or more, excluding policy mortgages. Jeonse, interim payments, and moving expenses are excluded.

The target fixed-rate ratio for all mortgage loans including policy mortgages will be frozen at last year's level for both banks and insurance companies, considering future interest rate conditions. At the end of last year, the fixed-rate administrative guidance target ratios were 52.5% for general mortgage loans and 71% for long-term mortgage loans in the banking sector, and 60% for insurance companies.

Additionally, the target ratio for installment repayments was raised by 2.5 percentage points to 62.5% for general mortgage loans in banks, and by 5 percentage points each to 55% and 77.5% for mutual finance and insurance, respectively. Considering that the current installment repayment ratio for long-term mortgage loans in banks is 82.8%, it was maintained at 85%.

The FSS stated, "Through this administrative guidance, we will continue to promote qualitative structural improvements in household loans in the financial sector, such as expanding banks' own fixed-rate loans. Upon achieving the administrative guidance targets, we will implement incentive systems such as preferential treatment for various contributions, and continue to pursue institutional improvements like activating covered bonds to improve long-term funding conditions for expanding long-term fixed-rate loans in the banking sector."